Big Four Consulting Firms Dip a Toe in Initial Coin Offerings

Initial coin offerings have raised billions of dollars for startups while attracting criminals and authorities around the globe. Now, the young market may get some help cleaning up from the Big Four consulting firms.

In recent months, the largest accounting firms have started -- albeit cautiously -- offering services specializing in the risky market for ICOs. The fundraising mechanism, where a company creates a new digital currency and sells it to the public, has become too big for the Big Four to ignore. ICOs generated $5.6 billion last year, driven by speculative investments, according to a report from research firm TokenData and Fabric Ventures, a blockchain investment fund.

The surge has caught the attention of regulators. China and South Korea banned ICOs outright in September. The U.S. Securities and Exchange Commission issued subpoenas this year as part of a crackdown. Last week, the SEC said it halted an initial coin offering and alleged the founders “masterminded a fraudulent ICO.” SEC Chairman Jay Clayton called out problems in the ICO market at a conference on Tuesday as one of two issues he finds surprising and troubling. (The other was penny-stock fraud.)

Consulting firms may be able to help companies navigate a fraught market, or they could find themselves dragged into scandal. That’s why they’re moving hesitantly.

“What we’ve been doing is advising some investors and some clients on what to do with an ICO -- whether they should do one, whether they shouldn’t,” said Eric Piscini, blockchain leader for the financial services group at Deloitte Consulting. “Our stance is very -- I don’t want to say risk averse, but it’s very wait-and-see for now on ICOs, because the regulatory environment is changing really fast.”

The hesitation toward ICOs is in contrast to the way Deloitte, PricewaterhouseCoopers, EY and KPMG jumped on the blockchain bandwagon as early as 2012. They quickly scrawled research reports and devoted staff to blockchain technology, a sort of distributed spreadsheet meant to be faster and more secure than systems used by financial services and other industries.

The ICO market, an offshoot of the cryptocurrency craze, has been around for years. The concept first drew international attention in 2016, when the Dao raised more than $150 million in just a few days. The hype soon turned to suspicion as the SEC took interest, the first instance of the regulator determining that tokens were sold as securities. While no charges were filed, the case served as a warning to the industry.

Since then, the ICO business has grown apace, raising more than $500 million in a single month last summer. Telegram Group Inc., a popular encrypted messaging app, has raised $1.7 billion so far in the world’s biggest ICO, according to a March regulatory filing. It has said it may pursue another offering.

When Egor Gurjev decided to hold an ICO last year for his cloud-gaming startup Playkey, he enlisted the help of Deloitte. The firm spent about six months offering legal advice before Playkey’s ICO, which raised $10.5 million in December, Gurjev said.

At PwC, ICO work has been mainly limited to clients in Asia and Europe. PwC hasn’t taken any ICO business in the U.S., said Grainne McNamara, the blockchain leader for the firm’s financial-services arm. “We’ve been quite active in assessing the U.S. ICO market to create comprehensive frameworks for our clients,” she said.

KPMG started taking on ICO clients mid-last year after almost nonstop interest, said Eamonn Maguire, U.S. blockchain lead at the firm. “Every day we’re getting outreach regarding ICOs,” he said. EY also said it has received daily inquiries for ICO consulting this year but declined to disclose the names of any clients.

“We are selectively working around the firm to help companies do ICOs, both domestically and internationally,” said Jeffrey Grabow, the U.S. venture capital lead at EY. In each offering, the firm is being particularly careful to communicate the various risks that are involved in the projects, he said. “We’ve been watching it evolve over time and are constantly figuring out what role we can and should play.”